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Federal and State Healthcare Reform: The Potential Financial Impact on Employers and Employees

Federal and State Healthcare Reform: The Potential Financial Impact on Employers and Employees. Tom Rugg, MBA Hickok and Boardman Group Benefits trugg@hbbenefits.com. Judicial Update – Moving on. The Affordable Care Act (ACA) and the Supreme Court.

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Federal and State Healthcare Reform: The Potential Financial Impact on Employers and Employees

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  1. Federal and State Healthcare Reform: The Potential Financial Impact on Employers and Employees Tom Rugg, MBA Hickok and Boardman Group Benefits trugg@hbbenefits.com

  2. Judicial Update – Moving on...

  3. The Affordable Care Act (ACA) and the Supreme Court • The Court’s decision wasn’t much of a surprise, but the reason behind it sure was • The Court concluded the individual mandate was not constitutional under the Commerce Clause, but could be justified within Congressional power to levy taxes • The decision did finally clear the way for the federal government and employers to push forward with full-speed ACA implementation • But………hesitations on implementation lingered until……….

  4. November Elections – Changes Coming? Not Likely

  5. The Post-Election Scenario: • Obama’s re-election puts to rest any thoughts of repealing the ACA • The US House: • Republicans maintain a 233-193 edge • The votes do not exist to override a presidential veto • The US Senate: • Democrats maintain a 55-45 edge • 60 votes are needed to stop a Senate filibuster • Expect only potential minor tweaks to the ACA over the next two years

  6. Federal Reform – Where are we at?

  7. The ACA in 2013: Getting Ready for Main Event The year will focus on final preparations for the new state health insurance Exchanges, which must be ready for enrollment in the fall of 2013. The year’s key provisions are: • Flexible Spending Account limits • Expanded authority to bundle payments • Increase Medicare Part A tax on wages by 0.9 percent • Here come the fees……..CERF’s up!

  8. The ACA in 2013: Flexible Spending Account Limits • Annual employee contributions to FSA’s capped at $2,500 • Like HSA contributions, amount will be indexed to the CPI starting in 2014 • No limit on employer contributions • Beware! Contribution limit applies on a calendar year basis – potential issues for non-calendar year FSA’s

  9. The ACA in 2013: Medicare Part A Tax • The ACA taxes single individuals with yearly income greater than $200,000 from self-employment or wages by 0.9 percent. • For married couples, an income of $250,000 for those filing jointly or $125,000 for a married person filing separately would also be taxed. • An additional tax of 3.8% applies to net investment income or an adjusted gross income that exceeds $200,000, whichever is less. • For married couples, either the net investment income or an adjusted gross income that exceeds $250,000 for those filing jointly or $125,000 for a married person filing separately would also be taxed.

  10. The ACA in 2013: Comparative Effectiveness Research Fee... now affectionately known as The Patient-Centered Outcomes Research Fee • Revenue from this fee will fund research to determine the effectiveness of various forms of medical change. • Annual fee on both fully insured (fee built into rates) and self-insured (self reported on Excise Tax Form 720) health plan • Applies to plan years beginning after 10/1/2011 and continues through 2019 • First payments are due on July 31, 2013 ~Self-funding reminder~!!!!!! • Initial annual fee is $1 per plan participant, including dependents • Increases to $2 in 2012 and indexed for inflation for future years

  11. The ACA in 2013: Comparative Effectiveness Research Fee... now affectionately known as The Patient-Centered Outcomes Research Fee • Fee will apply to the following: • Medical plans (fully insured and self-insured) • Stand alone behavioral health plans • Medicare supplements plans • Health Reimbursement Arrangements (HRA’s) • The fee does not apply to: • Health Savings Accounts (HSA’s) • Stand alone dental and vision plans • Employee Assistance Plans (EAP’s) • Medicare Parts A through D

  12. The ACA in 2013: Comparative Effectiveness Research Fee... now affectionately known as The Patient-Centered Outcomes Research Fee • Uh-oh, special rules for account-based plans • Flexible Spending Arrangements (FSAs) are exempt from the fees (unless FSA is only benefit option offered) • HRAs will generally be subject to the fees • If a plan consists of insured coverage (such as an insured medical benefit) plus an HRA, both the plan sponsor of the HRA and the issuer of the medical benefit will pay the fees, even if the lives covered under both are the same • Plan sponsors that provide self-insured health coverage and a self-insured HRA would pay the fee once for each individual enrolled in the plan. The self-insured coverage is not counted separately from the HRA.

  13. The ACA in 2013: Comparative Effectiveness Research Fee... now affectionately known as The Patient-Centered Outcomes Research Fee

  14. The ACA in 2014: The Crescendo Most of the key changes that are expected to get health insurance to millions of uninsured Americans, improve care, and reduce costs begin in 2014. The year’s key provisions are: • Individual insurance mandate • Employer insurance mandate • Essential health benefits • Excise taxes • No pre-existing conditions for all ages • Clinical trials • Annual dollar limits on essential health benefits • Eligibility provisions • Guarantee issue • Exchanges go into effect • Auto enrollment • Premium tax credits

  15. The ACA in 2014: Individual Insurance Mandate • Under the ACA, all people must have minimum essential coverage beginning January 1, 2014 • “Minimal essential coverage” is: • Government sponsored plan • Employer sponsored plan • Individual plan • If a person cannot keep minimum essential coverage, the Internal Revenue Service will collect a tax penalty from him or her. The annual tax penalty is described as the greater of: • 2014: $95 per uninsured adult in the household (capped at $285 per household) or one percent of the household income over the filing threshold • 2015: $325 per uninsured adult in the household (capped at $975 per household) or two percent of the household income over the filing threshold • 2016: $695 per uninsured adult in the household (capped at $2,085 per household) or 2.5 percent of the household income over the filing threshold

  16. The ACA in 2014: Individual Insurance Mandate • Furthermore…….. • For dependent children under the age of 18, the penalty is half the individual amount • The flat dollar penalty is capped at 300% of the flat dollar amount • Family of three (two parents and one child) without insurance in 2014 would pay $95+$95+$47.50=$237.50 • Family of five (two parents and three children) would pay $95+$95+$47.50+$47.50+$47.50=$285 and not the math equivalent of $332.50 because the 300% cap would apply • Percentage of taxable income calculation is the amount of household’s income that is in excess of the tax filing threshold (personal exemption plus the standard deduction, which is assumed to be $10,000 in 2014) • An individual with an income of $50,000 - $10,000 assumed threshold in 2014 x 1% = $400, which is greater than the $95 flat dollar amount • In general, the penalty is capped at an amount equal to the national average cost of a bronze level plan offered in the Exchange • If incurred, the penalty will be paid as a federal tax liability on income tax returns. Those that fail to pay the tax will not be subject to criminal penalties, liens or levies

  17. The ACA in 2014: Employer Insurance Mandate • Beginning January 1, 2014, employers must offer health insurance that employees can afford. The ACA also says that the plan offered must give employees a certain amount of value in that the plan must pay 60 percent of the cost of health services. If an employer does not meet these criteria, they will be assessed a tax. • According to Health and Human Services, a plan: • Provides minimum value if it pays at least 60 percent of the cost of services • Is affordable if a full-time employee does not have to pay more than 9.5 percent of household income for the premium • There are no tax penalties for employers with less than 50 full-time employees, or the equivalent.

  18. The ACA in 2014: Employer Insurance Mandate • How do I know if I’m a “large” employer with greater than 50 employees? • Calculation is based on full-time-equivalents • Part-time employees are calculated by taking the aggregate number of hours worked in a month divided by 120 • A “large” employer must offer minimum value and affordable coverage to all full-time employees working 30 hours or more a week or pay a penalty • Employers would also be taxed if one or more employees can get federal premium assistance to buy health insurance through an exchange • An employers first 30 employees are exempt from the tax

  19. The ACA in 2014: Health Insurance Industry Fee • Beginning in 2014, the ACA will tax health insurance companies based on their market share. The rate of this new excise tax rises each year between 2014 and 2018, and then increases at the rate of inflation. • In 2014, the fee raises $8 billion and increases on a fixed dollar schedule through 2018 • 2015: $11.3 billion • 2016: $11.9 billion • 2017: $12.6 billion • 2018: $14.3 billion. Beyond 2018, the total annual fee amount will increase in direct proportion to the growth in health insurance premiums • Applies only to fully insured plans, but does include dental and vision benefits • Fee is NOT tax deductible, which significantly increases the cost impact which is expected to be in the range of 2 to 2.5% of premium in 2014, increases to 3% to 4% in future years • Also……..pharmaceutical companies will be taxed on market share, which is expected to yield $2.5 billion annually while certain medical devices will be taxed at 2.3%.

  20. The ACA in 2014: Reinsurance Assessment • Beginning in 2014, the ACA will assess both fully insured and self-insured medical plans to reimburse companies that insure high-cost individuals within the individual insurance market. • Assessment works on a fixed dollar schedule and applies to medical plans only • In 2014, the total assessed amount is $12 billion, or roughly $75 per member per year • 2015: $8 billion, roughly $50 per member per year • 2016: $5 billion, roughly $30 per member per year • This assessment is tax-deductible

  21. The ACA in 2014:Health Insurance Exchanges • All states are required to have Exchanges functioning by January 1, 2014 and ready for open enrollment by October 2013. • Exchanges will offer standardized health plans in an effort to make health insurance more accessible and easier to purchase for small businesses and individuals. • Individuals purchasing coverage through an exchange may be eligible for federal premium assistance under certain circumstances • Exchanges will allow individual and small business to purchase health plans at five benefit levels: • Platinum (90% AV) • Gold (80% AV) • Silver (70% AV) • Bronze (60% AV) • Catastrophic (below 60% AV, only can be purchased by young adults) 

  22. The ACA in 2014:Health Insurance Exchanges • Exchanges will vary from state to state, but they all must conform to requirements determined by the Department of Health and Human Services. • Any plan offered by an insurer through an Exchange must be a Qualified Health Plan • Who might use the exchanges? Who is eligible for a subsidy?

  23. The ACA in 2014: Premium Tax Credits • The ACA provides that, beginning in 2014, individuals will be eligible for refundable premium tax credits if they: • Are not eligible for health insurance coverage through an employer or through a government program; • Have modified adjusted gross household incomes (MAGI) between 100 percent and 400 percent of the federal poverty level; • Are citizens of or lawfully present in the United States and not incarcerated (other than pending final disposition of charges); • The tax credits will be paid on a monthly basis directly to the qualified health plan (QHP) that an individual enrolls in through the exchange. • Individual must be enrolled in at least a “silver” tiered plan, to receive subsidies

  24. The ACA in 2014: Premium Tax Credits • Who’s eligible?????? • The individual must be an “applicable taxpayer” (i.e., file a tax return and not be claimed as a dependent on someone else’s return) • The applicable taxpayer’s family, which is also covered by the tax credit, includes all persons for whom the taxpayer claims a dependent tax deduction • Income based ranging from 100-400% of the Federal Poverty Level (FPL) • Income below 100% FPL trigger Medicaid eligibility • Starting in 2014, Medicaid eligibility expands to 133% of FPL • In 2014 dollars, 133% of FPL = $15,000 of annual income for individuals; 400% of FPL = $46,000 for individual • For a family of four, 133% of FPL = $32,000; 400% of FPL = $93,700

  25. The ACA in 2018 & 2020:What’s Left?!?!?! For 2018……. • A 40% tax on excessive benefits begins. Also known as the Cadillac tax • Limits benefits to $10,200 for single person plans and $27,500 for family plans in 2018. Excess is what is taxed. For 2020……. • The “Donut Hole” in the Medicare Part D prescription drug benefit is phased out. Enrollees will pay a standard 25% coinsurance on drug costs until they reach the threshold for catastrophic coverage

  26. Vermont – It’s All About the Exchange

  27. Vermont-Specific Changes Implemented in 2012 • Key ACA Changes Related to Insurance Markets • Definition of a “small group” for purposes of the Vermont Health Benefit Exchange • To remain at the current community-rated level of 50 eligible employees for 2014 and 2015 • An employer that had no more than 50 employees on at least 50% of its working days • Does not include a part-time employee working fewer than 30 hours per week • Per the ACA, small group definition changes to 100 eligible employees in 2016 • Preemption of Vermont’s association market rating rules • Say good-bye to VACE, BRS, VHSG, and AIVIS • We’re sticking around! • Federal law allows for “grandfathered” plans to remain intact. Very few plans will have retained grandfathered status by 2014, but a majority of those will be those plans offered by school districts

  28. Vermont-Specific Changes Implemented in 2012 • Key ACA Changes Related to Insurance Markets • Merging of the individual and small group health markets • All small group plans MUST be sold through the Exchange • No alternative “off-exchange” market • Bronze level plans allowed for sale in the Exchange • Original plan only allowed the sale of platinum, gold, and silver plans • Creates a role for brokers to assist with enrollment through the Exchange • The intent of the Shumlin Administration remains that the Exchange will serve as the initial step towards a single payer system called Green Mountain Care

  29. Vermont-Specific Changes Implemented in 2012 • What needs to be decided in the next 6-8 months: • What carriers will offer plans on the Exchange • BC/BS of Vermont and MVP Healthcare • What will the plans cost • What will the plan designs look like • 1 platinum plan • 1 gold plan • 2 silver plans • 2 bronze plans • 3 “Choice” plans designed by insurance carriers at each metal level

  30. Vermont-Specific Exchange Timeline • Proposals were submitted to DFR and DVHA to begin the qualified health plan certification on January 8, 2012 • Certifications of the plans is expected to be completed the spring of 2013 • Rate submissions are due to DFR on March 15, 2013 for health plans and April 15, 2013 for dental plans • Rate decisions from the Green Mountain Care Board are expected by mid-summer 2013 • Once rate decisions are made, DHVA must notify those plans selection. Those are expected to be issued on July 15, 2013 • Open enrollment begins October 1, 2013 • Coverage effective January 1, 2014

  31. Vermont – Today’s Issues... • The “Catamount Assessment” • With the advent of the Exchange in 2014, state-subsidized insurance programs expire • The Administration has proposed to keep the current assessment in place even though Catamount Health will be going away • Potential employer paradox of being recommended to drop employer sponsored coverage, but being taxed if you do so • Administration claims the dollars will be used to pay for the same services next year as it does now

  32. Vermont – Today’s Issues... • Uncertainty of federal funds • Administration looking to fix discrepancy in current state benefit offerings to mandated federal offerings in 2014 for low income individuals • Federal government said no to funding the 2014 plans at current state levels • Dialogue continues between the Administration and Legislature to reach a compromise between funds available and individual impact

  33. Ok, now what do I do? • As an employer, do I? • Continue to provide an employer-sponsored health plan to employees • No longer offer an employer-sponsored plan health plan and let employees purchase coverage through the Exchange with premium subsidies • Part of the decision making formula will involve: • Current plan costs compared to paying a penalty for not offering coverage • Making assumptions of family household income • Available subsidies • Affordability • The impact: • Employers will terminate their plan offering(s) • Employers will offer benefits on a defined contribution basis as opposed to a defined benefit • The rest will continue offering benefits similar to the way they do now

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